Technology has shaped a different spectrum of society today, empowering people beyond imagination. Today, it is an essential element of one’s life, making lives easier. Technology has transformed sectors such as education, transportation, communication, health etc.
A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. The technology that enables cryptocurrency is known as blockchain.
Blockchain is a distributed database that maintains a continuously growing list of ordered records. Each block represents several transactional records and the chain component links them all together. As records are created, they are confirmed by a distributed network of computers and paired up with the previous entry in the Chain.
It was originally developed as a part of the digital currency Bitcoin. But the two are not same as blockchain can support a wide range of applications and is already being used for peer to peer payment services, supply chain tracking, and more.
Blockchain is thus sometimes referred to as a distributed ledger. Data in blockchain is stored in fixed structures called blocks which has two important parts, i.e., header and content. It is a record of transactions and these transactions can be any movement of money, goods, or secure data. Further, the blockchain is designed to store information in a way that makes it virtually impossible to add, remove, or change data without being detected by other users.
Cryptocurrency in India
The Reserve Bank of India (RBI) has barred Indian banks from serving Bitcoins and cryptocurrency exchanges.
RBI has asked its own regulated entities (such as banks) to stop providing service to individuals or business entities dealing in cryptocurrencies which means you may not be able to buy/sell cryptocurrencies for INR through banks.
Indian financial regulator believes that technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. However, Virtual Currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns about consumer protection, market integrity, and money laundering, among others.
RBI has repeatedly cautioned users, holders, and traders of virtual currencies, including Bitcoins, regarding various risks associated with dealing with such virtual currencies.
When compared globally, I have noticed that some nations are welcoming, others are cautious. And some countries are downright antagonistic. Here is a brief overview of how some countries/unions from various regions are treating cryptocurrency regulations.
U.S.A. It has no coherent direction on its cryptocurrency regulations. The Securities and Exchange Commission (SEC) has warned investors of cryptocurrency investing risks, halted several ICOs, and hinted at the need for greater cryptocurrency regulation. However, the Commodity Futures Trading Commission (CFTC) became the first U.S. regulator to allow for cryptocurrency derivatives to trade publicly.
Canada. The Financial Consumer Agency in Canada does not consider cryptocurrencies to be legal tender, excluding all but Canadian bank notes and coins from that definition.
Venezuela. It is not a major world economy or a large portion of the cryptocurrency investing community. The country’s regulatory stance on cryptocurrencies, however, is noteworthy because the government is seeking to skirt economic sanctions imposed on Venezuela by announcing its own oil-backed petro cryptocurrency.
Japan. It is not particularly liberal toward digital currency regulation; it’s merely winning the race to attract the best from Asia’s cryptocurrency industry, as China and South Korea have been creating hostile/uncertain environments. Whether or not Japan will allow for a cryptocurrency-themed, the Japanese government has certainly been more welcoming of cryptocurrencies than its Asian neighbours.
China. Chinese bitcoin miners made up over 50 percent of the worldwide mining population and that cryptocurrency adoption in China increased at a rate higher than any other country. This is despite the regulatory actions of the People’s Republic of China. China has been taking ever-increasing actions to clamp down on cryptocurrency. China ordered a bank account freeze associated with exchanges, kicked out bitcoin miners, and instituted a nationwide ban on internet and mobile access to all things related to cryptocurrency trading. The People’s Republic of China appears to be the most stringent cryptocurrency regulator of the major economies regarding cryptocurrencies.
South Korea. The country boasted a significant cryptocurrency presence in the past. However, discord surfaced in January 2018 amongst top Korean officials on future regulatory actions for the digital currency industry, with declarations, clarifications, misinformation, and ultimately some limited implementation.
Singapore. Until recently, the finance and banking centre of Asia has been relatively lax compared to many of its Asian counterparts on cryptocurrency regulation. The Monetary Authority of Singapore (MAS), like many financial regulators, warned of risks of speculating in the cryptocurrency markets during the December 2017 peak in bitcoin prices. And Singapore’s International Commercial Court heard a trial that same month over a bitcoin trading dispute, seeming to legitimize the economic stakes in dispute.
Australia. The country, however, has supporters of digital currencies in government, as August 2017 major parties stepping forward to call on the Reserve Bank of Australia (RBA) to accept cryptocurrencies as an official form of currency. Therefore, the future of further cryptocurrency regulation remains uncertain but potentially industry-friendly in the land down under.
Switzerland. It is known for its progressive attitudes toward individual rights in banking, has kept a similar attitude toward cryptocurrency regulation. The Western European country is conspicuously absent from the European Union and appears to have an open attitude toward the cryptocurrency industry. The Swiss set up a working group with an aim to increase legal certainty, maintain the integrity of the financial center and ensure technology-neutral regulation. The working group will report to the Swiss Federal Council by the end of 2018.
Russia. Like South Korea, Russia can not seem to decide how it wants to handle cryptocurrency regulation. Now there is a legal vacuum, and accordingly it’s hard for me to say if these actions are legal or not. The senior most officials of the Government believes that the prerogative of the Central Bank at present and the Central Bank has enough authority so far. However, in broad terms, legislative regulation will be required in the future in Russia.
South Africa. The country is relatively progressive about cryptocurrencies compared to others on the list. While the 2014 position paper on virtual currencies issued by the South African Reserve Bank seemed promising for the industry, the South African government began in July of 2017 to work with Bankymoon, a blockchain-based solutions provider, on creating a balanced approach to bitcoin regulation.
Challenges with cryptocurrencies
Lack of coherent regulation is inhibiting trust and adoption. The widespread scams in the crypto space and the long use of the technology for illegal purposes is undermining the potential of the cryptocurrency. Concerns around privacy and volatility and the possibility of a total collapse could be the factors impeding the adoption of cryptocurrencies. Not very user friendly, cryptocurrency is relatively limited to technically-savvy audiences. If the barriers for entry remain as high as they are, cryptocurrency will not achieve the trust and adoption it needs to become real money. The issue of a parallel economy on cryptocurrency networks has caused governments to take a stern view on cryptocurrencies. Countries banning cryptocurrencies will have to be cautious in their approach as it could fuel money laundering, illegitimate transactions, and tax evasion.
Each technology comes with its own set of advantages and disadvantages. Emerging technologies such as Blockchain has the potential to create social, societal, and economic change. It can be used as a tool to improve transparency and efficiency as well as reduce cost within various industries.
The greatest impact for blockchain would be in streamlining internal processes, building blockchain-based digital services, and providing trust, security, and transparency in business ecosystems, including the IoT.
The technology presents an opportunity for disruptive innovation and will transform several industries ranging from healthcare to real-estate as it allows value exchange without the need for trust or central authority. Across the organizations, the blockchain technology is being explored to enhance process efficiencies.